In early July, Minneapolis-based Target Corporation (NYSE:TGT) made a $150,000 donation to a local business advocacy group, MN Forward. Six other Minnesota businesses, including Best Buy Co., Inc., (NYSE:BBY), followed suit with $100,000 gifts. MN Forward used the funds to run an ad supporting a socially conservative Republican candidate for Governor, Tom Emmer. The ad for Emmer, who faces an Aug. 10 primary, didn't mention that Emmer’s an outspoken opponent of gay marriages; rather, it focused on his opposition to taxes and spending.

The messenger apparently signaled more than the message. According to the Bloomberg Businessweek story, and what many claim is a self-inflicted reputation crisis,
gay-rights advocates saw the donation as a betrayal by Target, which has long cultivated support among gays by, for example, providing health benefits to domestic partners and sponsoring Twin Cities Pride, an annual celebration. Since the contribution became public, as required under Minnesota law, calls for a boycott and other protests have mounted on YouTube (GOOG) and Facebook. "We feel betrayed," says Jeffrey Henson of Portland, Ore., who started an anti-Target Facebook group that has almost 40,000 followers. Protesters have also stood outside Target stores with placards denouncing the company.

Target’s CEO, Gregg Steinhafel, issued three apologies since late July. The company has not commented on whether or not it will ask for the money back.

Politics aside, the question of interest to the Society is whether or not within all this noise there is a brewing crisis of reputation. According to the Society's lore, and the book, Mission: Intangible, there are three key business processes driving reputation value in the retail sector. These intangible assets are business processes that (1) promote ethical behavior, (2) deliver quality products (price is embedded in quality since it constitutes an expectation), and (3) advance sustainability. Walmart's issue with labor is an example of a reputation that is challenged in the ethical behavior department. But is a campaign contribution with an indirect link to a politically sensitive issue sufficiently material to impact reputation? And if it is so in some cases, can a company have a sufficiently resilient reputation to withstand the challenge?

Let's turn to the metrics. The Steel City Re Corporate Reputation Index does not reveal evidence of a reputation crisis arising from this event. Looking at a reputation metrics snapshot after the markets closed on the day of the rally, 5 August, neither Target nor Best Buy seem to show any material impact attributable to the political donation and the controversy arising.

Target’s reputation has been in the top slot for several months relative to the 16 peer companies in the Department Store sector. Being ranked in the 100th percentile confers resilience, and so it is not surprising that the kerfuffle this past week, and the smoldering activity this past month, have had no apparent effect. This is confirmed by a quick peek at equity pricing. While TGT has been increasingly underperforming its peers with a -17% relative return over the trailing twelve months measured the week of the donation, and a -24% relative return on 5 August, it does not appear to be linked to the event. This past week, at the height of the protests, there was actually a small relative equity bump as TGT was underperforming the median of its peers by 25% the week before.
Yet even with a firm that may not benefit from reputation resilience, the event appears to been more smoke than fire. Best Buy’s reputation has been on a steady decline since late April when it peaked at the 76% percentile among the 124 companies in the Retailers sector. Over the past month, that decline continued with only a small step jump (drop) of two percentile points this past week. In terms of equity pricing, BBY has been underperforming its peer group for some time, but over this past week reduced that gap from -33% to -28%. In conclusion, based only on the above metrics, there appears to be no reputational consequence attributable to the political contribution.
But there is nevertheless a lesson. The event was not allowed to fester and apologies were quickly issued. As the Wall Street Journal summarizes, "The Target flap shows the potential downside for companies that want to get more involved in politics since a January Supreme Court ruling on campaign contributions. Brand-oriented companies, in particular, worry about getting embroiled in controversies that can tarnish their reputation."